There Are No Perry Mason Moments in Insider Trading Cases

Perry Mason, the television defense lawyer portrayed by Raymond Burr, had ways to get the real perpetrator to break down on the witness stand and confess to the crime.Credit
CBS Photo Archive, via Getty Images

A powerful claim in a criminal case is the defense lawyer’s proclamation of the client’s innocence, exemplified by the near-perfect record of the fictional defense lawyer Perry Mason getting the real perpetrator to break down on the witness stand and confess to the crime.

White-collar crime prosecutions have no shortage of innocence claims, but figuring out whether the defendant committed a crime is much more difficult because these are quintessentially offenses of the mind, revolving around intent and knowledge. It is a fine line between guilt and innocence when no one disputes what happened while everything depends on what the defendant understood and intended.

The trial of William T. Walters on insider trading charges now taking place in Federal District Court in Manhattan is a prime example of how difficult it will be to figure out whether a defendant is not guilty of a white-collar crime. He is a world-renowned gambler who has been prosecuted four times before on different charges but never convicted.

Mr. Waters is accused of trading on information he received from Thomas C. Davis, a former chairman of the board of Dean Foods who was also a consultant in an activist campaign involving Darden Restaurants. Mr. Davis is cooperating in the case, claiming that Mr. Walters gave him disposable cellphones — one nicknamed the Bat Phone — and that they used code names for companies, like Dallas Cowboys for Dean Foods, to cover up passing along confidential information.

Mr. Walters does not deny trading in the two companies, but his lawyer, Barry H. Berke, assailed Mr. Davis as a liar who implicated Mr. Walters to save himself. The New York Times reported that Mr. Berke told the jury in his opening statement that “we’re going to unravel every single lie Tom Davis is going to tell here.”

To explain the trading, Mr. Berke asserted that Mr. Walters used the skills he developed as a gambler by picking stocks much the way a poker player scopes out an opponent based on “tells,” or “little clues that are not obvious.”

This is similar to the mosaic theory offered by the hedge fund founder Raj Rajaratnam when he was charged in 2009 with multiple counts of insider trading in Federal District Court in Manhattan, claiming that the information he received was just one tidbit among a wealth of data he put together to decide whether to buy or sell a stock. The jury rejected the defense by finding him guilty and he received an 11-year prison sentence.

The defense of Mr. Walters is a claim that he has a better account for his trading that does not involve inside information, but it does not eliminate the possibility that Mr. Davis was one of his tells in assessing the companies for an investment. Is that really a claim of innocence or an alternative explanation that raises enough doubt for the jury to return a not guilty verdict?

Jurors are not asked to decide if a defendant is innocent, despite the defense lawyer’s appeal that the client did nothing wrong. The only issue in a criminal prosecution is whether the government introduced sufficient evidence to prove the elements of the offense beyond a reasonable doubt.

That high burden means a defendant might have committed the crime but there could be enough doubt so that it is proper not to convict. This reflects the oft-repeated principle of the famous English jurist William Blackstone, who wrote in the 18th century that “it was better that 10 guilty persons escape, than that one innocent suffer.”

There has been a significant amount of publicity about wrongful convictions in which defendants have been exonerated after spending years in prison for crimes they did not commit. Many of these cases involve DNA evidence showing conclusively that the perpetrator was not the defendant, while others involved confessions extracted by the police through high-pressure interrogations that were shown to be false.

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The core of these innocence cases involves a misidentification, not a claim that a crime did not take place. Thus, in ordinary street crimes the identity of the perpetrator is paramount, and typical defenses involve an alibi or questions about whether the victim properly identified who committed the offense.

White-collar crimes do not involve any of the issues typical in the exoneration cases, so the claim of innocence instead hinges on what the defendant knew about the transactions at issue and their purpose. The recent announcement by Joon H. Kim, the acting United States attorney in Manhattan, about the decision not to charge any crimes involving fund-raising by Mayor Bill de Blasio of New York that may have involved pay-to-play contract awards shows how equivocal evidence of wrongdoing can be.

In closing the investigation, Mr. Kim noted “the particular difficulty in proving criminal intent in corruption schemes where there is no evidence of personal profit,” indicating that the conduct came close to the line — well short of any declaration of innocence.

In insider trading cases, jurors have often been unwilling to credit assertions of innocence when the trades were particularly well-timed and quick profits raise suspicions that confidential information must have been used.

The conviction last week of Robert M. Schulman, a former patent law partner at Hunton & Williams, for tipping an investment adviser about an impending merger involving King Pharmaceuticals shows how difficult it can be to persuade a jury to accept the claim made by his lawyer after the indictment that “evidence at trial will show that my client is innocent.” The government’s case was built around testimony from a cooperating witness that Mr. Schulman tried to cover up that he had “a few glasses of wine and let spill about the King Pharmaceuticals acquisition by saying that ‘it would be nice to be King for a day.’”

The jury chose not to accept the assertion of innocence, but that does not necessarily mean a defendant like Mr. Schulman will desist from a claim that he did nothing wrong. Many insider trading defendants continue to proclaim their innocence long after a guilty verdict.

Michael Kimelman, who was convicted of insider trading in 2011 along with two co-defendants, argues in a new book, “Confessions of a Wall Street Insider: A Cautionary Tale of Rats, Feds, and Banksters,” that he was innocent, but that his defense was hamstrung by being tried with others who more clearly engaged in illicit trading on confidential information. His efforts to overturn the conviction, contending that there were errors in the jury instructions, have been fruitless so far.

Joseph P. Nacchio, the former chief executive of Qwest Communications, asserted that he was innocent despite his conviction on 19 counts of insider trading in the company’s stock before it disclosed negative financial information, spending over four years in prison. He argued that the government set him up after he stood up to pressure from the National Security Agency to turn over customer phone records.

Whether white-collar defendants are innocent can never truly be known because these crimes are not susceptible to the type of proof that would definitively exonerate a person, making it almost impossible for there to be any Perry Mason moments of vindication. There is no DNA that can establish conclusively what was in a defendant’s mind at the time the conduct took place, so professions of innocence based on a lack of intent can never be proved — or disproved.